NASDAQ extends losses into Wednesday, here is the morning trading plan1

NASDAQ futures are coming into Wednesday gap down after an overnight session featuring featuring extreme range and volume.  Price worked lower overnight, trading down through the recent swing low, down into the September 3rd range before settling into a balance.  As we approach cash open, price is hovering inside of last Friday’s range.

On the economic calendar today we have crude oil inventories at 10:30am.

Yesterday we printed a double distribution trend down.  It was nearly a trend day but there were signs of buyers—who spiked price higher on the open before being overrun with sale orders, and again late in the session around the Friday gap fill 7699.50, showing up around 2pm New York and rotating price higher a bit, before finding seller in the lower quadrant of the range who worked price back down near the lows before end of day.

Heading into today the NASDAQ is out of balance from yesterday and we are likely to see higher time frame participation at the open.  Look for sellers to gap-and-go lower, trading down to close the 09/03 open gap at 7616.75.  Look for buyers down at 7596.75 and two way trade to ensue.

Hypo 2 buyers work into the overnight inventory and close the gap up to 7697.  Look for price to continue higher, up through overnight high 7730.50 before two way trade ensues.

Hypo 3 full on liquidation, trading down to 7573 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring extreme volume on elevated range.  Price worked higher overnight, trading up near last Wednesday’s high before settling into balance.  As we approach cash open, price is hovering above Monday’s range.

On the economic calendar today we have ISM employment/manufacturing at 10am.

Yesterday we printed a double distribution trend up.  The day began with a gap up, and after two-way auction buyers stepped in and drove price higher.  The auction stalled out ahead of last Friday’s high before rotating back to the daily midpoint.  Price then rallied back near the high in a late session ramp.

Heading into today my primary expectation is for sellers to press into the overnight inventory and reclaim the Monday high 7788.75.  From here we continue lower, closing the overnight gap 7784.50.  Look for buyers down at 7762.75 and two way trade to ensue.

Hypo 2 buyers gap-and-go higher, trading up through overnight high 7826.75.  Look for sellers up at 7868 and two way trade to ensue.

Hypo 3 stronger buyers rally up to 7900 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Monday with a slight gap up after an overnight session featuring extreme volume on elevated range.  Price was choppy overnight, balancing around last Friday’s midpoint.  As we approach cash open, price is hovering about ten points above the 7700 century mark.

On the economic calendar today we have 3- and 6-mont T-bill auctions at 11:30am.

Last week markets worked lower. Monday began with chop, Tuesday went trend down.  Wednesday morning we found a strong responsive bid at the pivot and reversed much of Tuesday.  Thursday was choppy before sellers stepped back in Friday and worked us back near the lows.  The last week performance of each major U.S. index is shown below:

On Friday the NASDAQ printed a double distribution down.  The day began with a slight gap up then a drive lower.  Sellers worked down near Thursday low before discovering a responsive bid ahead of it.  Said buyers worked price back near the opening print before being overrun by sellers who accelerated price range extension down.  After some chop along the Thursday low, sellers became initiate and worked price to a new weekly low.  There was a slight ramp higher into the close.  Price ended in the lower quadrant of the DD down.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7699.50.  From here we continue lower, down to 7668 before two way trade ensues.

Hypo 2 stronger sellers trade price down to 7629.25 before two way trade ensues.

Hypo 3 buyers press up through overnight high 7759 on their way up to 7766.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

I never know if any of you are paying attention so very quickly let me update my stance on equities from a long term perspective down to intra-day oscillation.  I believe we are entering a period of economic prosperity the likes of which no living human has ever seen.  A throwback to the roaring ’20s, only this time the drivers are semiconductors and AI.  As nation-states and religions continue to lose their grip to science and the internet, I expect this expansionary period to be longer than anyone can reasonably fathom.  We will likely never see another recession in my mortal life (current age: 34).

That stated, the equity complex will succumb to intermediate term corrections.  There is only one way of forecasting these events and that is by interpreting years-and-years of raw stock market data—interactions between buyer and sellers of all rank.  This data tells a story and from it we can build probabilities.  These probabilities are our most objective method of taking action without being selfish or arrogant.

There are very few stocks worth owning, ever, even if you’re just a ‘trader’.  Stocks should only be bought with a 10-20 year intended holding period and to own a share of a corporation that long is the closest thing to faith any living human should ever subject themselves to.  Tesla is a cult.  It just so happens to have the sexiest and most confident Leader in the world and a mission that The People Who Matter believe in.  This is an important concept—The People Who Matter.  These are people who actually have money to invest into long-term strategies.  They have real wealth and can deploy it for a cause.  Think Bill and Melinda Gates.

These are people who can read reports on the climate and mortality and other things and make rational, objective decisions based off of them.  Then, armed with scientific facts, they go about using their resources to effect change.

These people, like most humans, tend to fear death the most.  Therefore they invest in ways to thwart death, both biologically (CRISPR) and species-wide (SpaceX, Tesla, and so on).  They like their rich life and aren’t ready to abandon it for the ethereal plane.  They don’t run out of money and they always need places to invest, even if (shocker) the equity markets are in a correction.

Even if the United States is losing world dominance to China and their one party political system.  Even if fiat currency, The Grande Illusion, is starting to fail.

Our job as ruthless speculators, profiteers of the highest rank, is to take advantage of any and all situations.  To seek out shipwrecks and pick up the flotsam and sell it.  To be ahead of herd migrations, to set up kiosks that sell important wares at a nice profit margin.  To borrow things, sell them, then buy them back cheaper in a few days.

The most effective way to do these activities successfully is with a set of tools that short-circuit the human ego, allowing us to consistently do our job with as little personal offense or self-aggrandizement as possible.  My set of tools is signalling bearish for the second week in row.

The other data I take into consideration every Sunday is not as clearly bearish as it was last Sunday.  Last Sunday the deck was fully stacked in the favor of the bears.  This week, not quite as much.  But two bear signals in a row, that is not common, so I got to looking back at other repeating occurrences.

My data set only has one—back on July 30th, 2017.  Dust off your charts and peer back to then, and you will see we entered a two-month-long-time-based correction.  Basically we marked time, in a tight range, across the entire equity complex.

Now a lesser interpreter of data would take this observation and run with it, decreeing from far and wide that the next correction is neigh!  But your old pal RAUL doesn’t carelessly write such predictions with a data set of one.  I need at least 50 samples before considering something to be statistically significant.

Nevertheless, the price action on the PHLX semiconductor index is troubling.  And if you recall, a few hundred words up I noted that our entire rally is predicated on semiconductors.  So this requires our attention.  IOTS screwed the pooch two weeks back, last week it was MU.  There is a downside gap that we are accelerating down into and that selling is likely to continue.

Therefore I will set out early next week to establish a short position trade against the NASDAQ via SQQQ.  I will also be only working the short side of the tape via NASDAQ futures.  That means shorting gap ups inside the prior days range, ‘going with’ crosses down through the daily mid as long as an overnight or initial balance stat is in play, and shorting the levels highlighted during the morning trading reports.

One of my key cues throughout the week, as to whether I should continue working the short side is NVDA.  I watch that ticker like a hawk.  I also bear in mind where were are trading relative to the weekly ATR band, on both the Russell and the NASDAQ.

So there you have it.  Long-term bullish on tech and bearish on nations and fiat, short term bearish on equities with a laser focus on semiconductors.

That’s all I’ve got.

Raul Santos, September 29th, 2019

Exodus members, the 254th edition of Strategy Session is live, go check it out!

NASDAQ futures are coming into Wednesday flat after an overnight session featuring extreme range and volume.  Price was chopping along the unchanged line for much of the overnight session before selling off around 3:30am New York.  Price worked down below the Tuesday range, probing deep down into the 09/04 range before discovering a bid.  Buyers spiked price back up to unchanged and as we approach cash open price is holding the line.

On the economic calendar today we have new home sales at 10am, crude oil inventories at 10:30am and both 2- and 5-year note auctions at 1pm.

Yesterday we printed a double distribution trend down.  The day began with a gap up beyond the Monday range.  After a brief open auction higher, price reversed and rotated back into the Monday range.  Sellers worked the overnight gap fill then continued lower, accelerating price to the downside as the took out the Monday low.  Sellers drove down and closed the open gap from 09/04 at 7722.50 before price settled into a choppy balance way down in the lower quadrant of the session.

Heading into today my primary expectation is for sellers to press down through Tuesday’s low 7701.75 and continue lower, down through overnight low 7683.25.  Look for buyers down at 7674.25 and two way trade to ensue.

Hypo 2 sellers cannot take out Tuesday low 7701.75, instead reversing higher and trading up through overnight high 7759.25.  Look for sellers up at 7800 and two way trade to ensue.

Hypo 3 stronger buyers rally price up to 7842, effectively erasing most of Tuesday’s selling before two way trade ensues.

Hypo 4 full on liquidation.  Price accelerates down through 7674.25 setting up a run to 7629.50.  Stretch targets are the open gap at 7616.75 then 7600 then 7572.25.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring elevated range on extreme volume.  Price spiked higher overnight, working up into last Friday’s sell-of before settling into balance.  As we approach cash open, price is hovering above Monday’s high.

On the economic calendar toady we have consumer confidence at 10am followed by a 2-year note auction at 1pm.

Yesterday we printed a normal variation up.  The day began with a slight gap up that was resolved during the opening two-way auction.  Sellers then stepped in and worked price down below last week’s lows by a few ticks before buyers rejected the probe lower.  Price was choppy through most of the morning before rallying to range extension up ahead of New York lunch.  Price then chopped along the highs for the rest of the session before briefly revisiting the daily midpoint before the close.

Heading into today my primary expectation is for buyers to gap-and-go higher. The way balance is sustaining above Monday’s highs suggests buyers intend to work up through overnight high 7904.75.  Look for sellers up at 7914.25 and two way trade to ensue.

Hypo 2 sellers work into the overnight inventory and reclaim Monday’s high 7865.75 setting up a gap fill down to 7850.75.  From here we continue lower, down through overnight low 7848.75.  Look for buyers down at 7800 and two way trade to ensue.

Hypo 3 stronger buyers trigger a full on rally.  First sustaining trade above 7920.75 then continuing up to 7941.50.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Monday gap up after an overnight session featuring extreme volume on extreme range.  Price shot higher Sunday evening when Globex opened for trade, with price rallying up beyond the Friday midpoint before reversing the entire spike and more throughout the early A.M. hours.  As we approach cash open, price is balanced out in the lower quadrant of last Friday’s range.

On the economic calendar today we have Markit composite/manufacturing/service PMI at 9:45am followed by 3- and 6-month T-bill auctions at 11:30am.

Last week U.S. index prices marked time through the beginning of the week after coming into Monday gap down.  Participants appeared to be waiting for the FOMC rate decision Wednesday before taking action.  After the rate cut sellers stepped in and drove prices lower before being overrun by strong buying.  The strong buying continued into Thursday morning before prices eventually reversed and returned to the lows of Wednesday by the end of the week.  The last week performance of the major indices is shown below:

On Friday the NASDAQ printed a double distribution trend down.  The day began with a gap up to about the midpoint of Thursday’s range which sellers quickly resolved lower.  Sellers then took out Thursday’s low and accelerated price down into the post-FOMC spike, trending down below the Wednesday low by a few ticks before discovering a responsive bid.  Buyers nearly worked price back up to the daily midpoint before sellers stepped back in and returned price near the lows.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7832.  From here we continue lower, down through overnight low 7814.  Look for buyers just below the 7800 century mark at 7796 and two way trade to ensue.

Hypo 2 stronger sellers sustain trade below 7796 triggering a liquidation down to 7743.25 before two way trade ensues.

Hypo 3 buyers work up through overnight high 7897.50 and continue higher, up to 7900 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

I don’t deal in geopolitical, fiscal policy or sensational narratives behind stock market moves.  I digest a bunch of raw data every Sunday in form of price and volume—and not just volume at a specific time—where it occurs and what it accomplishes.  Then I dig down into the internals, update my charts on a few key sub-indexes, review the big news from last week and how the market reacted, see which public companies rocketed or tanked on earnings or other news and then finally I add in a layer of sentiment.  Add all that up, and I am bearish heading into next week.  These are a few of the most pertinent details regarding my bearish call heading into the week.

IndexModel, my auction theory model, signaled Rose Colored Sunglasses, the only bearish signal it generates.  Other recent signals were August 11th and June 16th, and going back to 2015 the hit rate on this signal is high.  So when I write a blog title that says “high probability” it is actually backed by a data set that is measured and tracked.  Not just some careless tweet.

The PHLX semiconductor index printed a failed auction last week.  Here is a picture of what I mean:

Most of you jokers don’t pay attention to my work, but the upside down version of the failed auction above happened on the NASDAQ Transportation index at the beginning of September and was what precluded the rally.  This was my note on September 1st:

Since this week’s failed auction is on the semiconductor index, and since semiconductors are the key driver of the entire stock market rally since 2016, the situation deserves a bit more attention.

Thirdly, the current picture of the NASDAQ transportation index is rather bearish also.  Looks like an island top:

Fourthly, last week saw investors rotate into UTILITIES, the most risk-averse sector in the financial ecosystem.  The only other strength last week was seen in low quality sectors.  Meanwhile consumer discretionary was weak.  BIG RED FLAG:

If you drill down into the industry-by-industry performance from last week, the picture becomes more clear.  Key industry groups saw significant outflows last week:

The third move after the Fed rate decision was down.  That had me leaning bearish Wednesday and as you might imagine, I had to tuck and run when then powerful rally blew through late Wednesday.  I was on the road for business the rest of the week, but sure enough, sellers worked us back down to the weekly low.  I am talking NASDAQ prices.  Sellers took control of the tape.

Finally, I listen to other traders, the real OGs and otherwise, through a variety of methods—-Twitter, newsletters, internet videos, and so on.  Coming into the week I picked up on a tone of arrogance, borderline hubris.  My mentor always like to say though, which drives me nuts, “if you see it, you be it.” I know what it looks like because it is inside of me too.  And usually the market whips me back into obedience.

So there you have it, my bearish thesis over the next five days.  It’s an uncomfortable call with markets near record highs and the Fed LOWERING interest rates, which disgusts me.  Maybe some news bit or Presidential tweet will come to my bearish aide, or not, or the opposite.  I have no idea and anyone who claims to is a liar.

My plan is to establish a position short via SQQQ at some point early next week and ride the position through late Friday. I will also only be working the short-side of the NASDAQ 100 tape, intraday, fading overnight gap ups, “going with” downward crosses of the daily mid point if I have an open overnight or range extension stat, and selling into any rallies into the key price levels highlighted during the morning trading reports.

Nothing fancy.  It’s all quite simple actually, and wholly independent of any world happenings.  Do you know how satisfying it is?  To love thy discipline and let it support me?  Making my way through the world, no one’s master and no one’s slave?

Really nice.

Raul Santos, September 22nd, 2019

Exodus members, I basically outlined this Sunday’s Strategy Session above, but there are more details in the report, which is live now.  Go check it out!

NASDAQ futures are coming into Wednesday with a slight gap down after an overnight session featuring elevated volume on normal range.  Price held balance in the upper half of Tuesday’s range overnight.  As we approach cash open, price is hovering near Tuesday’s high print, which is back at the “scene of the crime” the price level we sold off from Sunday evening once futures opened for trade and we able to react to the Iranian/Persian drone attack on Saudi Arabian oil equipment.

On the economic calendar today we have crude oil inventories at 10:30am.  These numbers may garner more attention today, given the geopolitical backdrop this week for oil.

PLENTY OF OIL!

— Donald J. Trump (@realDonaldTrump) September 15, 2019

Also on the economic calendar today we have an FOMC rate decision at 2pm followed by a press conference from Federal Reserve chairman Jay Powell.  Fed fund futures on the CME are currently pricing a 61.2% chance of a rate cut.  This is a live meeting, and the commentary afterwards is likely to offer clues into the Fed’s thinking.

Yesterday the NASDAQ printed a normal variation up.  The day began flat and we chopped sideways for most of the session until about 3:30pm when we ramped higher into the bell, going range extension up and pressing price back to the scene of the crime from Sunday night.  We ended the day near session high.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7914.25.  From here we continue higher, up through overnight high 7921.50.  Look for sellers up at 7936.50.  Then look for the third reaction after the FOMC rate decision to dictate direction into end-of-day.

Hypo 2 stronger buyers trade up to 7976.25 before settling into two-way chop.  Then look for the third reaction after the FOMC rate decision to dictate direction into end-of-day.

Hypo 3 sellers press down through overnight low 7887.25 setting up a move to target 7866.50 before two way trade ensues.  Then look for the third reaction after the FOMC rate decision to dictate direction into end-of-day.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Monday, the first full trading week with active traders mostly on the December contract, gap down after an overnight session featuring extreme range and volume.  The Globex session began with a gap down and drive lower after news of a drone strike late Saturday night on key Saudi Arabia oil facilities.  Price traded down into last Tuesday’s range before discovering a strong responsive bid.  Buyers were unable to erase the entire overnight move, but as we approach cash open, price is balancing along inside of last Wednesday’s range.

On the economic calendar today we have 3- and 6-month T-bill auctions at 11:30am.

Last week saw weakness across most of the equity complex during Monday/Tuesday trade, with a very apparent bullish divergence happening in the Russell futures.  That told the story as strength entered the market Wednesday and Thursday before we faded a bit into the weekend.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a neutral extreme down.  The day began with a slight gap down that was resolved during the morning two-way auction.  Price went range extension up briefly, probing into the Thursday range before being rejected away by sellers.  Then most of the session was spent chopping along the daily low, marking time, eventually closing near session low.

Neutral extreme down.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7910.  Look for sellers here and two way trade to ensue.

Hypo 2 sellers work down through overnight low 7798.25.  Look for buyers down at 7796.50 and two way trade to ensue.

Hypo 3 stronger buyers sustain trade above 7910 setting up a move to target 7936 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves: